The Week in Review

From what we learned this week, we may simply repeat from our last Review – relative dynamics, US / UK / E-Z remain in place: the US will continue to distance these two, the UK to nudge ahead of the E-Z, and the E-Z to continue to “disappoint.”  If there are “surprises” to UK numbers, these will be to the side of more, not less.  If there are “surprises” to E-Z numbers, these will be to the side of less, not more. 

This then represents the most general plan in capturing relative price change just ahead.

US - The US consumer may pause a tad, but will remain resilient; in fact, consumer activity will accelerate into H2, and this despite the less-than-buoyant trend in earned income (flat hourly earnings / flat workweek). Savings and credit cards will take up the slack, until… private sector employment comes to the rescue. This is the best kind of jobs creation, and is averaging 163M per month after 26 straight months of gain. This is pretty impressive given headwinds, those retardants pressed by the current administration (rampant Fed spending / rampant debt growth / huge tax hike due Jan/2013 / failed energy policy).

E-Z – Recent events have fit our earlier predictions – observers continue to over-estimate activity, this region, especially official observers (Mr. Draghi comes to mind).  We included Germany in this initial observation and still do.  Events will bear us out over the near term.

UK – The last Retail Sales result (Apr/20) fit our guideline to clients for this credit, along with the recent Construction PMI but of course Q1 GDP, and the Manuf PMI did not and we were confident that they would. We’re not especially happy with these results, although we are almost certain that the GDP will be revised to a +0.2 or 0.3%.  The recent CBI (Apr26) on the face did not fit either, but the outlook component was encouraging. 

All in, the odds continue to favor our approach, for the balance of Q2. That is, any major surprises to be to the side of relative vigor.  Crowd behavior applies equally well to economists as it does to the investment crowd. This bunch are still caught up in the malaise of the moment.

Robert Craven